Study On The Relevance Between Managementbuyout And Diversification Based On The Incentive-Intensity Hypothesis

In 1990s,MBO has been brought to China as a way of reforming the ownership of state-owned enterprises.Once the managers has the control right of deciding,they will redesign the internal-management mechanism and readjust the operations to enhance the competitive ability of their enterprises.By doing so,they could get much more reward than the original shareholders.Diversification is closely related to the value and governance of a company as it is an important way to expand.Some scholars find that the incentive to managers and supervision level have a remarkable effect on diversification level.Unlike others,the incentive to managers in MBO listed companies is much higher and special. So it is necessary to study the relationship between MBO and diversification.This paper is started from the incentive-intensity hypothesis. Sample of this paper includes the MBO and the matched non-MBO listed companies from 1999 to 2004,then we analysed the relationship between MBO and change of diversification:Firstly,we establish a Logistic model to analyse if change of diversification has some impact on MBO and if the change of diversification is a predictor of MBO.Secondly,we test the effect of MBO on diversification.This part includes is to test if MBO has a remarkable effect on change of diversification according to the incentive-intensity hypothesis.Lastly,we conclude the extent and direction of diversification could be a predictor of MBO to some degree, change of incentive has made managers to readjust diversification in order to increase the value of their companies.